If not having money in crypto, then in what?

[OTR365]

The discussion now is coupling of crypto with traditional stock markets - which crypto was supposed to hedge against.

If you own stocks and want protection against a market crash, you must either 1) sell your shares, 2) short stock index futures (or individual stock futures) or 3) buy put options (and hope the market will remain open).

All other methods (such as gold and bitcoin) are much less precise. Over the long term, they will protect your purchasing power by being only moderately correlated with the stock market. Protecting a portfolio with stock (index) options will cost several percentage points every year, while gold, bitcoin etc. will hopefully bring profits. Attached is a short video about safe havens by Mark Spitznagel, who is an absolute expert on the subject.

Gold took a nosedive, like it did in 2008 crash, but has now fully recovered. Because of refinery closures, physical gold owners have now profited during the crisis. In my opinion, in general and regarding bitcoin in particular, you are a bit impatient. The curtains have just opened, the show has barely begun. I will remind you all when the Bitcoin Fat Lady sings.

 

[LouisB]

If you own stocks and want protection against a market crash, you must either 1) sell your shares, 2) short stock index futures (or individual stock futures) or 3) buy put options (and hope the market will remain open).

All other methods (such as gold and bitcoin) are much less precise. Over the long term, they will protect your purchasing power by being only moderately correlated with the stock market. Protecting a portfolio with stock (index) options will cost several percentage points every year, while gold, bitcoin etc. will hopefully bring profits. Attached is a short video about safe havens by Mark Spitznagel, who is an absolute expert on the subject.

Gold took a nosedive, like it did in 2008 crash, but has now fully recovered. Because of refinery closures, physical gold owners have now profited during the crisis. In my opinion, in general and regarding bitcoin in particular, you are a bit impatient. The curtains have just opened, the show has barely begun. I will remind you all when the Bitcoin Fat Lady sings.

There is also a fourth option - to buy inverse ETF. But I think the best approach is gradually selling during uptrends and buying within sell-off. Anyway, in my opinion, to invest in US index stocks is not a bad idea, soon we will have behind us FED that will be directly supporting the price through purchases if it is needed

 

[LouisB]

Guys you are being too dramatic about the EU situation Nobody is going bankrupt within the 3 years. It sounds like one more conspiracy theory.

It looks like that, even big strategically important companies will likely not go to bankruptcy and states bailout them. After Lehman Brothers, people in charge are aware that they will not take this risk again, maybe in 20-30 years the situation changes as people in charge forget

 

[JohnLocke]

It looks like that, even big strategically important companies will likely not go to bankruptcy and states bailout them. After Lehman Brothers, people in charge are aware that they will not take this risk again, maybe in 20-30 years the situation changes as people in charge forget

Do you really believe that?

 

[Gediminas]

Do you really believe that?

Well, when looking at how they (EU countries) are dealing with the corona pandemic, I would say the bankruptcy of the EU is nowhere close. I just don't see it happening.

 

[JohnLocke]

There are three camps in this world, the one the believe a EU Collaps and the one that deny anything like that will happen so there is the last, something will happen and we will see a financial crisis. The entire world is about money, human life has a low value.

 

[Gediminas]

There are three camps in this world, the one the believe a EU Collaps and the one that deny anything like that will happen so there is the last, something will happen and we will see a financial crisis. The entire world is about money, human life has a low value.

Maybe it would be easier to imagine if something like this happened before. But none of the big and strong countries or unions of countries has bankrupted in the past. Well, maybe the Soviet Union collapse, but this was nothing to do with economics.

 

[JohnLocke]

Let's wait and see what's going to happen, one thing is for sure, it will be exciting in the next few months

 

[Sols]

I've seen doomsayers predict the end of the EU, EUR US, USD, and so much else for many, many years now. None of them turn out to be right. But some of them make money selling advice and services to libertarian nutjobs.

The only difference between financial doomsday prophets and religious ones is the subject matter. The accuracy seems to be just about the same.

 

[JohnLocke]

I don't believe in doomsday neither, just to make it clear. But I belive that many countries will suffer we want to see something in the style of 2008 maybe not so bad, maybe we do, we don't know it quite yet. The wise say it is already as bad as it was in 1930 - given the rising unemployment figures given the huge economic challenges facing the world over.

 

[clemens]

@OKboomer will you ever come back and tell us about your findings?

 

[void]

I don't believe in doomsday neither

does taxation of account balances, wealth taxes and restrictions on convertibility between fiat and assets like gold and crypto count as a doomsday? I'm worried it's pretty real

 

[Martin Everson]

There is also a fourth option - to buy inverse ETF.

Stay away from inverse ETF's. Most inverse ETF's are for very short term use like overnight. Holding them longer guarantees a loss from fees etc.

Anyway, in my opinion, to invest in US index stocks is not a bad idea, soon we will have behind us FED that will be directly supporting the price through purchases if it is needed

That's pretty much it. The US FED will be like the Bank of Japan and own a large portion of their local ETF market....lol. Once they realize US pension funds will get into trouble if markets sink they will bail out the entire stock market..lol. So yes not a bad idea at all....lol.

 

[KJK]

All other methods (such as gold and bitcoin) are much less precise. Over the long term, they will protect your purchasing power by being only moderately correlated with the stock market. Protecting a portfolio with stock (index) options will cost several percentage points every year, while gold, bitcoin etc. will hopefully bring profits. Attached is a short video about safe havens by Mark Spitznagel, who is an absolute expert on the subject.

Gold took a nosedive, like it did in 2008 crash, but has now fully recovered. Because of refinery closures, physical gold owners have now profited during the crisis. In my opinion, in general and regarding bitcoin in particular, you are a bit impatient. The curtains have just opened, the show has barely begun. I will remind you all when the Bitcoin Fat Lady sings.

This Spitznagel guy claims all assets are correlated and no diversification will work. That means we are screwed, no matter if you hold a world index, US index, gold miners, emerging markets, non-cyclical stocks, distressed stocks, corporate bonds, whatever... And he expects an even bigger crash to come.

I'm part of the people who got hit by the March crash - I knew something is wrong with the economy and I saw some overvalued stuff but I absolutely did not expect that the trigger will be a combination of new virus spreading from a f*****g Chinese bat and oil at $20 per barrel prices. I also did not expect everything will crash in tandem.

I admire anyone who expected that or saw it coming; even in January it felt very distant to me - I can withstand such crash (financially and mentally) but then I also think about service workers with very little savings, pension funds that got hit badly and they still expect to earn 10%+ pa forever in the future with their stocks/bonds strategy.

Today is a crazy situation but I'm definitely NOT shorting the market - by that I'd be fighting the Fed's machine gun with unlimited ammo. Also I don't want to sell stocks after a loss... So I'm one of the millions of idiots on which Spitznagel's hedge fund made some money.

LouisB: I never bought/traded an inverse index ETF but I must agree with Martin, buy it only if you know exactly what you are doing and WHEN you're doing it. Some of them are even 3-5x leveraged. The three possibilities listed by OTR365 are pretty good for 99% of situations imho.

What is a Bitcoin Fat Lady by the way?

 

[OTR365]

This Spitznagel guy claims all assets are correlated and no diversification will work.

During a market panic, they are. Investors sell every asset they can, not necessarily every asset they want to sell. After that, the prices start to decouple. We've seen that now in gold, which is making new highs as we speak. Gold's long-time correlation coefficient with the stock market is slightly negative, bitcoin's slightly positive.

Discussion about hedging, safe havens etc. is a bit muddied, with many concepts confused. For specificially hedging a stock portfolio, gold/bitcoin are not good options. They may be good option for long-term survival of capital, especially in (rare) situations where banks, custodians etc. might go under.

And he expects an even bigger crash to come..

Yes, as do basically everyone forming their opinions via Austrian Economics. If by some miracle the Fed managed (again) to kick the can down the road, the next crisis would be even bigger. At some point the market (incl. interest rates) will return to a level that reflets real capital formation, not central bank manipulation.

I also did not expect everything will crash in tandem.

Not many did, I didn't either. I had less than 0.4% of my wealth in stocks. But I have a very large position in bitcoin, which behaved like a stock, so . I've been in bitcoin rollercoaster more or less continuously since 2013, so I am not worried at all, and almost don't care. If bitcoin goes to zero, I hope gold will pull me through.

...but then I also think about service workers with very little savings, pension funds that got hit badly and they still expect to earn 10%+ pa forever in the future with their stocks/bonds strategy.

IMO, most countries, most people will be truly fucked in 2-3 years time. The little guy in any country does not have any savings. Governments were caught pants down again, so not much help from there, either. If there's even a short recovery, that would be a good time to build proper buffers.

What is a Bitcoin Fat Lady by the way?

Fat Lady singing refers to Wagner's opera Nibelungen. When the fat valkyrie Brünnhilde sings, that's the time for a final tally of the situation - not before. "Bitcoin Fat Lady" was just my way of telling I expect bitcoin to eventually reach bubble prices, like it did in 2013 & 2017. Maybe not 30X like last time, but way, way higher. My expectations for this year are not high, they weren't high even before the crash.

 

[LouisB]

Stay away from inverse ETF's. Most inverse ETF's are for very short term use like overnight. Holding them longer guarantees a loss from fees etc.



That's pretty much it. The US FED will be like the Bank of Japan and own a large portion of their local ETF market....lol. Once they realize US pension funds will get into trouble if markets sink they will bail out the entire stock market..lol. So yes not a bad idea at all....lol.

Not sure if your response is irony, but yes, in my long term point of view, the investments into US stocks make sense as FED cannot afford to let them go too low

 

[LouisB]

Inverse ETF's have some costs that's true, but the questions were what is out there for hedging during a crisis (I guess the author meant short or medium hedge, not for years)

 

[LouisB]

Do you really believe that?

Yes, I really believe that FED doesn't let any big company bankrupt and the reason is simple. The freezing interbank market in 2008 was so huge, that I don't see why they should allow this scenario to repeat again in the situation when they have enough easy tools on how to prevent this trouble. Anyway we will be wiser thanks to response from FED to airlines

 

[LouisB]

I've seen doomsayers predict the end of the EU, EUR US, USD, and so much else for many, many years now. None of them turn out to be right. But some of them make money selling advice and services to libertarian nutjobs.

The only difference between financial doomsday prophets and religious ones is the subject matter. The accuracy seems to be just about the same.

We are people and for some reason, we like doomsday predictions. There is one little dangerous thing out there and it is called "lost confidence in US dollar". Hypothetically if USD would go through a long downward cycle and depreciates, then other central banks that have really big foreign reserves denominated in USD would maybe try to shift their USD foreign reserves for something else (the big question here is for what else). China threatened by a similar step back then in 2007/8, but at the end of the day, their % dollar reserves increased. So what could be the trigger to lost confidence in US debt? Maybe if US long term bonds (10y/30y) would go to the negative yields and holders of US debt would seek other different assets, what would cause on a further drop of value USD. But this can happen probably only during a crisis when a lot of capital ends in US treasuries and push their yields down. This example is another example of a cascade effect and it is one (but less likely) scenario how this world can get into serious trouble.

 

[Martin Everson]

but the questions were what is out there for hedging during a crisis (I guess the author meant short or medium hedge, not for years)

I will repeat it again......AAA sovereign bonds during a crisis and cash.